Read the full judgment text of FACV 3/2019; FACV 5/2019 on BabelCite. This Court of Final Appeal judgment was delivered on 9 October 2020 before Ribeiro PJ, Fok PJ, Cheung PJ, Bokhary NPJ, Lord Sumption NPJ.
Arbitration – enforcement of arbitral award – common law action on award – Mainland arbitral award – CIETAC arbitration – Arrangement concerning Mutual Enforcement of Arbitral Awards between the Mainland and HKSAR – section 2GG of Arbitration Ordinance – section 40B – New York Convention – whether common law action on award is restricted to mechanistically mirroring award terms – 'mechanistic argument' – whether action on implied promise to honour award caught by arbitration clause – 'outflanking argument' – whether Johnson v Agnew bars damages when award for continued performance is extant – 'extant award argument' – tort of inducing breach of contract – requirement of intent and causation – OBG Ltd v Allan – whether defendant subjectively believing contract is at an end satisfies the mental element – constructive trust – lex situs rule for shares – whether Hong Kong court can impose constructive trust despite PRC proper law not recognising trusts – whether agreement amenable to specific performance – whether framework agreement requiring supervision and cooperation – conditions precedent to transfer of shares – Lysaght v Edwards – share transfer agreement for property development rights in Xiamen – Lot 22 – The Plaintiff (Xiamen Xinjingdi Group) entered into Agreement on 4 July 2003 with D1-D2 (Eton Properties Limited and Eton Properties (Holdings) Limited) to acquire development rights of Lot 22 in Xiamen by purchasing shares in D4 (Hong Kong company) for RMB120 million plus HK$2 nominal fee for the shares, with delivery of land within 6 months and share transfer after full payment – D1-D2 repudiated Agreement on 14 November 2003 – D1-D2 restructured shareholding of D4 between November 2005 and April 2006 by allotting 9,998 shares to D3 (BVI company) to dilute their interest to 0.02%, concealing this from the Plaintiff – CIETAC arbitration in 2005-2009 produced First Award (27 October 2006) ordering continued performance of Agreement plus RMB1,275,000 damages, and Second Award (22 April 2009) dismissing D1-D2's termination application – Plaintiff obtained leave to enforce First Award in Hong Kong under section 2GG in October 2007 with judgment in terms of the award – D1-D2 first disclosed restructuring on 2 January 2008 – Plaintiff commenced common law action in May 2008 claiming breach of implied promise to honour award, constructive trust, conspiracy and inducing breach of contract against D1-D2, D3, D4, D6 (Mr Lucio C Tan) and individual defendants – DHCJ Stone QC dismissed all claims in 14 June 2012 judgment – Court of Appeal (Yuen, Barma and Poon JJA) allowed Plaintiff's appeal in part on 15 April 2016 in respect of common law action on the award, dismissing all other claims – Plaintiff elected for damages and on 20 October 2017 the statutory judgment was set aside and judgment entered for damages against D1-D2 with quantum to be assessed – Cross-appeals heard 25-26 August 2020 – Court of Final Appeal held that common law action on the award is not restricted to mechanistic enforcement mirroring award terms – action on implied promise is a separate cause of action with different elements, limitation period and applicable law, not caught by the arbitration clause – Johnson v Agnew does not bar damages in the enforcement action – enforcing court may grant damages to give effect to the award even though tribunal only made an award for continued performance – first appeal (FACV 3/2019) dismissed – In the cross-appeal (FACV 5/2019), plaintiff failed to prove tort of inducing breach of contract because defendants subjectively believed Agreement was at an end due to unaccepted repudiation, an honest if legally mistaken view – constructive trust claim dismissed because although lex situs of D4 shares (Hong Kong) determines capability of equitable interest and PRC proper law does not preclude such inquiry, the Agreement was not specifically enforceable being subject to conditions precedent not within plaintiff's sole control and requiring constant supervision and cooperative performance – both appeals unanimously dismissed – costs to be dealt with on the papers with liberty to lodge written submissions within 21 days
Legal issues: Mechanistic restriction on common law action to enforce Mainland arbitral award · Whether common law action on award is caught by arbitration clause (outflanking argument) · Whether Johnson v Agnew bars damages when award for continued performance is extant · Causation and intent requirement for tort of inducing breach of contract · Whether Hong Kong court can impose constructive trust when PRC proper law does not recognise trusts · Whether the Agreement was amenable to specific performance
Outcome: Both appeals unanimously dismissed. The Court of Appeal's judgment entering judgment for damages against D1-D2 for breach of the implied promise to honour the Award is upheld (FACV 3/2019 dismissed). The Plaintiff's cross-appeal against dismissal of its claims against D3, D4, D6 and other defendants for inducing breach of contract and constructive trust is also dismissed (FACV 5/2019 dismissed).
Cited by 9 cases · Cites 8 cases